Oyster Bay Town Hall, in Oyster Bay on March 27,...

Oyster Bay Town Hall, in Oyster Bay on March 27, 2016. Credit: Anthony Lanzilote

Penalties sought by the U.S. Securities and Exchange Commission against Oyster Bay could hurt the town’s credit rating, Moody’s Investors Service said in a report issued Thursday.

The SEC last month sued Oyster Bay and former Town Supervisor John Venditto, accusing them of allegedly defrauding municipal bond investors by failing to disclose indirect loan guarantees to a private company in its bond prospectuses. The SEC seeks a to-be-determined fine as well as a five-year ban on the town issuing debt unless it implements recommendations of a court-appointed consultant or gets court approval.

“Given the town’s high dependence on cash-flow borrowing, the potentially significant penalties limiting debt issuance and imposing a fine would be credit negative,” Moody’s wrote in the report. A restriction on cash flow borrowing through Tax Anticipation Notes “would jeopardize ongoing operations,” the report said.

Town Supervisor Joseph Saladino said in a statement, “Town finances are now headed in the right direction.”

Moody’s said the near-term impact of the SEC lawsuit will be limited because the outcome of the suit and the town’s challenge to it will not be known for “considerable time.”

The rating agency said the appointment of an outside consultant could be a positive development for the town if internal financial controls were improved.

Moody’s withdrew its rating of Oyster Bay last year because of a lack of financial information provided by the town and then reinstated it three notches lower at Baa3, one notch above junk status, in January.

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